Streamline Production Systems, Inc. v. Streamline Manufacturing, Inc.

Appeal
from the United States District Court for the Southern
District of Texas

Before
STEWART, Chief Judge, and KING and DENNIS, Circuit Judges.

KING,
Circuit Judge

Streamline
Production Systems, Inc. filed this trademark infringement
suit against Streamline Manufacturing, Inc. seeking damages
under the Lanham Act and Texas common law. After stipulating
to an injunction, the parties proceeded to a jury trial on
the issues of infringement and damages. The jury returned a
verdict finding that Streamline Manufacturing, Inc. infringed
on Streamline Production Systems, Inc.'s valid trademark
in its name and awarded damages for lost royalties, unjust
enrichment, and exemplary damages, each in the sum of $230,
000, for a total award of $690, 000. The district court
denied Streamline Manufacturing Inc.'s motion for
judgment as a matter of law, as well as its renewed motion
for judgment as a matter of law, or in the alternative, for a
new trial. Finding insufficient evidence to support the
damages awards, we AFFIRM the jury's finding of trademark
infringement but VACATE the damages awards.

I.
FACTUAL AND PROCEDURAL BACKGROUND

A.
Facts

Plaintiff-Appellee
Streamline Production Systems, Inc. (SPSI) was established in
1993 by Michael Renick in Beaumont, Texas. SPSI initially
began as an oilfield services company. In 1997, SPSI began
custom fabricating pressure vessels, and today, it produces a
range of custom fabricated natural gas processing equipment,
such as gas separators, heat exchangers, re-boilers, and
pressure vessels, and sells that equipment to customers
nationwide, in addition to continuing to provide oilfield
services and repair. Later on, Renick founded three other
companies that all use "Streamline" in their names
and share staff with and operate in the same region as SPSI
but do not manufacture custom fabricated natural gas
processing equipment. SPSI's 2013 sales exceeded $27
million. According to Renick, his company has been successful
over the years because it is "well-known in the oil
field."

SPSI's
logo consists of the word "Streamline" written on a
ring encircling the image of a piece of natural gas
production equipment. SPSI includes this logo, along with its
phone number, on a metal placard that it attaches to each
piece of equipment it produces. SPSI also uses this logo for
its advertising, which includes printed brochures, branded
merchandise, branded racecars, and a website. SPSI's
current website is streamlinetexas.com. The website's
color scheme is blue and white. The banner at the top of the
website depicts "Streamline Production Systems"
written in white lettering and integrated with a piece of
natural gas production equipment against a blue background.
Prior to operating its website at this URL, SPSI operated a
website at the URL streamlinetx.com, which, according to
SPSI's business manager, was "very generic" and
was not relied upon for business.

Defendant-Appellant
Streamline Manufacturing, Inc. (SMI) was founded in 2009 in
Houston by Luis Morales and Bob Tulio. SMI also fabricates
natural gas processing equipment, including pressure vessels,
boilers, heat exchangers, skids, and separators, and sells
them to customers nationwide. But unlike SPSI, it does not do
any oil field servicing or repair work. SMI also attaches a
placard to each piece of equipment it produces identifying
SMI as the manufacturer, but unlike SPSI's placard, it
does not include SMI's phone number. Both Morales and
Tulio worked at another oil and gas equipment manufacturing
company, RCH Industries, before they founded SMI. Initially,
all of SMI's business came from customers with whom
Morales and Tulio had preexisting relationships through their
prior work at RCH Industries, and those customers have
continued to comprise the majority of SMI's business.
Some of these customers are equipment resellers who sell
SMI's equipment to end-market users. Relying on this
customer base, SMI reached over $1 million in sales in its
first full year of business, and between 2009 and 2014, it
had over $20 million in total sales.

According
to Morales and Tulio, they selected the name "Streamline
Manufacturing, Inc." for their new company after
conferring with family members and "bouncing names
around, " with the goal of "trying to find
something short" and "not[] confusing." They
sought a name with a three letter acronym because that was
how their previous company (RCH) was referred to and because
they thought such a concise name "denote[d]
efficiency." They brainstormed several possible names
that they "pull[ed] . . . out of the air, " one of
which was "Streamline Manufacturing, Inc." They
provided these possible names to their lawyer so he could
check the availability of the names with the Texas Secretary
of State, and SMI showed as available, so it was chosen. In
choosing this name, Morales and Tulio professed to be
entirely unaware of SPSI's name, location, degree of
success, customers, and even its mere existence; nor did they
know Renick. After choosing SMI as a name, Morales sought to
establish a website. He used a commercial website to search
available domain names, and the search indicated that his
first choice for a domain name, SMI.com, was not available.
Morales then searched for "Streamline, " and
streamline.com was also not available, but the search
provided a drop down box indicating several other available
variations. Morales picked the shortest available variation
shown in the drop down box, streamlinetx.com, as SMI's
website domain name. This was the same domain name previously
used by SPSI. SMI's website was predominantly blue and
white in color scheme, and its homepage displayed SMI's
logo: "SMI" in blue font against a background of a
photo of natural gas equipment overlaid against an outline of
the state of Texas. Besides this website, SMI did not engage
in any advertising or marketing efforts and did not even have
a sign outside its office.

Around
2011, SPSI began to learn of SMI's existence. First, it
attempted to update its website but learned that its
registration had lapsed and that SMI had taken over the
domain. It also began to encounter customers and vendors who
confused SPSI and SMI. In 2012, Renick learned that one of
SPSI's oil field services customers, Century Exploration,
had a piece of equipment manufactured by SMI that it
mistakenly believed it had purchased from SPSI. Another
customer, Union Services, mistakenly sent a $130 check
intended for SPSI to SMI instead. Renick also received a call
from a purchasing agent at Pioneer Resources, a natural gas
company, who said he had a pressure vessel with a
"Streamline" placard on it but no phone number and
he was interested in purchasing more. It became clear that
the purchasing agent was an SMI customer, had an
SMI-manufactured vessel, and had erroneously called SPSI.
According to Renick, SPSI's vendors also occasionally
erroneously shipped equipment to SMI's offices. And two
vendors refused to sell equipment and materials to SPSI
because they confused it with SMI, who had unpaid bills.
Despite these instances of confusion, SPSI did not contact
SMI.

At the
same time SPSI was learning of SMI's existence, SMI was
also learning of SPSI. In 2011, a representative from the
Texas Secretary of State called SMI seeking to collect
franchise taxes owed by SPSI. In addition, a third-party
insurance inspector mentioned to Morales that he knew of
another company called "Streamline." SMI also
received at least one phone call intended for SPSI. And in
2013, an employee at one of SMI's customers, Mustang,
told Morales that there was another business called
"Streamline" in Texas but it is not clear that he
mentioned what type of work it did. SMI did not investigate
SPSI after any of these instances of confusion. Tulio
explained that at first he thought SPSI was a movie
production business due to the presence of
"production" in its name. He also justified his
lack of concern over the confusion based on the fact that SMI
did not "run into" SPSI.

In
February 2013, Renick submitted an application to the United
States Patent and Trademark Office (PTO) for trademark
registration of the mark "Streamline Production Systems,
" and the PTO issued the trademark for this phrase on
October 29, 2013. On November 26, 2013, SPSI sent a cease and
desist letter to SMI, demanding that SMI "immediately
cease and desist the use, display, and distribution of any
materials bearing the phrase STREAMLINE MANUFACTURING."
The letter stated that SPSI was the holder of the common law,
state, and federal trademark in Streamline Production Systems
and that SMI's use of "Streamline
Manufacturing" infringed on SPSI's trademark because
it was "highly similar in look, sound, and
connotation" and used in conjunction with similar goods
and services. SMI's counsel responded in a letter on
January 14, 2014, disclaiming any infringement of SPSI's
trademark. In March 2014, Renick signed an agreement with
SPSI assigning his "entire right, title and interest in
and to" his trademark in "Streamline Production
Systems" to SPSI.

B.
Proceedings

On May
9, 2014, SPSI filed suit against SMI, alleging, in relevant
part, infringement of its trademark under the Lanham Act and
Texas common law and seeking damages as well as injunctive
relief. In its answer, SMI denied all claims.[1] Nevertheless, SMI
ultimately stipulated to a preliminary injunction on August
28, 2014. Pursuant to the injunction, SMI agreed to, within
120 days, change its name and discontinue all use of
"Streamline Manufacturing" on its marketing and
communications materials, and within 30 days, discontinue its
use of the domain name "streamlinetx.com." SMI
eventually changed its name to Strongfab Solutions, Inc.
SPSI's suit proceeded to a five-day jury trial on the
issues of trademark infringement and damages, commencing on
November 16, 2015. The jury heard testimony from SMI's
and SPSI's principals, SPSI's damages expert, and two
representatives of companies that were customers of SMI. At
the conclusion of SPSI's case, SMI moved for a directed
verdict on SPSI's common law trademark infringement
claim, arguing that SPSI had not demonstrated any actual
damages, which the district court denied. At the conclusion
of all testimony, SMI moved for judgment as a matter of law
(JMOL) on all of SPSI's claims, which the district court
also denied. The jury was given a lengthy jury charge
outlining the burden of proof on each verdict question and
the elements of each claim.[2]

The
jury returned its verdict on November 23, 2015. The jury
found that SPSI proved by a preponderance of the evidence
that SPSI had a valid trademark under the Lanham Act and
Texas common law in "Streamline Production Systems"
and that SMI had infringed on this trademark.[3] The jury further
found that this infringement was the proximate cause of
damages to SPSI. However, the jury found that SPSI failed to
prove it was entitled to any profit that SMI had earned that
was "directly attributable" to its infringing use
of the trademarks and that SMI had earned "zero"
profit through its infringing use of the trademarks.
Nevertheless, the jury awarded SPSI $230, 000 as a
"reasonable royalty" for SMI's use of the
trademark, another $230, 000 for unjust enrichment to SMI
through its infringing use, and a final $230, 000 as
exemplary damages, for a total damages award of $690, 000.

The
district court entered a final judgment in the case on
November 24, 2015. SMI then filed a renewed JMOL motion, or
in the alternative, a motion for new trial. SMI argued it was
entitled to JMOL, in relevant part, on (1) the trademark
infringement claims, (2) the claim for unjust enrichment, and
(3) the jury's finding that SMI's infringement was
done with "malice, gross negligence, willfulness, or
willful blindness" and its corresponding finding that
SPSI was thus entitled to exemplary damages. The district
court denied this motion without explanation. SMI timely
appealed.

II.
TRADEMARK INFRINGEMENT

SMI
appeals the district court's denial of its renewed motion
for JMOL, or in the alternative, a new trial on the issue of
trademark infringement. We review the denial of a renewed
JMOL motion de novo, applying the same standard in reviewing
the motion as the district court.[4]Cowart v. Erwin,
837 F.3d 444, 450 (5th Cir. 2016). "When a case is tried
to a jury, a [JMOL] motion . . . 'is a challenge to the
legal sufficiency of the evidence supporting the jury's
verdict.'" Id. (quoting Heck v.
Triche, 775 F.3d 265, 272 (5th Cir. 2014)). In reviewing
a challenge to a jury verdict, "we draw all reasonable
inferences and resolve all credibility determinations in the
light most favorable to the [verdict]." Id.
(quoting Heck, 775 F.3d at 273). The motion should
be denied "unless there is no legally sufficient
evidentiary basis for a reasonable jury to find as the jury
did." Id. (quoting Heck, 775 F.3d at
273).

We
review the district court's denial of a motion for a new
trial for abuse of discretion. Id. "The
district court abuses its discretion by denying a new trial
only when there is an 'absolute absence of evidence to
support the jury's verdict.'" Cobb v. Rowan
Cos., 919 F.2d 1089, 1090 (5th Cir. 1991) (quoting
Irvan v. Frozen Food Express, Inc., 809 F.2d 1165,
1166 (5th Cir. 1987)). When the district court has denied,
rather than granted, such a motion, "[o]ur review is
particularly limited" and we affirm the denial
"unless the evidence-viewed in the light most favorable
to the jury's verdict-points so strongly and
overwhelmingly in favor of one party that the court believes
that reasonable men could not arrive at a contrary
[conclusion]." Cowart, 837 F.3d at 450
(alterations in original) (quoting Alaniz v.
Zamora-Quezada, 591 F.3d 761, 770 (5th Cir. 2009)).

SPSI
brought its trademark infringement claim under both the
Lanham Act, 15 U.S.C. § 1114, and Texas common law,
[5] and
the parties agreed in their joint pretrial order that both
governed the trademark infringement claim. To prevail on its
claim of trademark infringement under the Lanham Act, SPSI
must show two elements: (1) it possesses a legally
protectable trademark and (2) SMI's use of this trademark
"creates a likelihood of confusion as to source,
affiliation, or sponsorship." Nola Spice Designs,
L.L.C. v. Haydel Enters., Inc.,783 F.3d 527,
536 (5th Cir. 2015). The elements of common law trademark
infringement under Texas law are the same as those under the
Lanham Act. Hot-Hed, Inc. v. Safehouse Habitats
(Scotland), Ltd., 333 S.W.3d 719, 730 (Tex. App.-Houston
[1st Dist.] 2010, pet. denied). We consider the evidence on
both of these elements in turn.

A.
Possession of a legally protectable trademark

SMI
argues that no reasonable juror could have found that
"Streamline Production Systems" was a legally
protectable trademark. The Lanham Act defines a trademark as
"any word, name, symbol, or device, or combination
thereof" that is used "to identify and distinguish
. . . goods . . . from those manufactured or sold by others
and to indicate the source of the goods." 15 U.S.C.
§ 1127. "To be legally protectable, a mark must be
'distinctive' in one of two ways": (1) inherent
distinctiveness or (2) acquired distinctiveness through
secondary meaning. Nola Spice Designs, 783 F.3d at
537 (citing Am. Rice, Inc. v. Producers Rice Mill,
Inc., 518 F.3d 321, 329 (5th Cir. 2008)). Registration
of a mark with the PTO is "prima facie evidence that the
mark[] [is] inherently distinctive." Id. But
this evidence can be rebutted "by demonstrating that the
mark[] [is] not inherently distinctive, " id.,
and if so, we cancel the trademark registration, Xtreme
Lashes, LLC v. Xtended Beauty, Inc., 576 F.3d 221, 232
(5th Cir. 2009).

To
assess the distinctiveness of a word mark, as opposed to a
design mark, we "rel[y] on the spectrum set forth by
Judge Friendly in Abercrombie & Fitch Co. v. Hunting
World Inc., 537 F.2d 4, 9 (2d Cir. 1976)." Nola
Spice Designs, 783 F.3d at 537. This spectrum divides
the distinctiveness of marks into five categories: "(1)
generic, (2) descriptive, (3) suggestive, (4) arbitrary, and
(5) fanciful."[6]Id. The latter three categories
are inherently distinctive, whereas generic marks cannot be
distinctive and "descriptive marks are distinctive only
if they have acquired 'secondary meaning.'"
Id. In categorizing a mark, we "examine the
context in which it is used, " including "'how
[the term] is used with other words, ' 'the products
or services to which it is applied, ' and 'the
audience to which the relevant product or service is
directed.'" Id. (alteration in original)
(emphasis omitted) (quoting Union Nat'l Bank of Tex.,
Laredo v. Union Nat'l Bank of Tex., Austin,
909 F.2d 839, 847 (5th Cir. 1990)). We ask: What do the
buyers understand by the term? Id. at 537-38. When
evaluating a multi-word mark, such as "Streamline
Production Systems, " we consider the mark "as a
unitary whole in its given arrangement, and do not parse
apart the constituent terms." Xtreme Lashes,
576 F.3d at 232.

The
jury found that SPSI's mark, "Streamline Production
Systems" is "suggestive, arbitrary, or
fanciful." Because it made this finding, it did not
reach the question of whether the mark had achieved secondary
meaning. SMI argues that the mark is merely descriptive and
has not acquired secondary meaning, and thus is not
sufficiently distinctive to warrant trademark protection.
SPSI counters that its mark is, at minimum, suggestive and,
even if it is merely descriptive, it has acquired secondary
meaning and is thus sufficiently distinctive to warrant
trademark protection. Since the question of whether
SPSI's mark is legally protectable depends on whether it
is descriptive (receiving no trademark protection unless it
has secondary meaning) or suggestive (receiving trademark
protection), Nola Spice Designs, 783 F.3d at 537,
our analysis will focus on these two categories of
distinctiveness.

"A
descriptive term identifies a characteristic or
quality of an article or service, such as its color, odor,
function, dimensions, or ingredients." Id. at
539 (quoting Amazing Spaces, Inc. v. Metro Mini
Storage, 608 F.3d 225, 241 (5th Cir. 2010)). "Thus,
in many cases, a descriptive term will be an adjective such
as 'speedy, ' 'friendly, ' 'green, '
'menthol, ' or 'reliable.'" Union
Nat'l Bank, 909 F.2d at 845. "Examples of
descriptive marks would include Alo with reference to
products containing gel of the aloe vera plant and Vision
Center in reference to a business offering optical goods and
services." Nola Spice Designs, 783 F.3d at 539
(quoting Amazing Spaces, 608 F.3d at 241). We have
previously recognized that "[d]escriptiveness is
construed broadly." Xtreme Lashes, 576 F.3d at
232.

Our website includes the first part of the main text of the court's opinion.
To read the entire case, you must purchase the decision for download. With purchase,
you also receive any available docket numbers, case citations or footnotes, dissents
and concurrences that accompany the decision.
Docket numbers and/or citations allow you to research a case further or to use a case in a
legal proceeding. Footnotes (if any) include details of the court's decision. If the document contains a simple affirmation or denial without discussion,
there may not be additional text.

Buy This Entire Record For
$7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.